unconventional thinking aapg calgary playmakers website/play maker... · unconventional value...
TRANSCRIPT
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Copyright © 2013 by Decision Strategies
Unconventional Thinking AAPG Calgary Playmakers
Bill Haskett Senior Principal – Energy Strategy
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You have to have good rock.
Nothing can save you if you don’t…
Above All…
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Think Strategy From The Beginning (the four arena strategy model)
Strategy
People and Skills Factory Efficiency
Image and Communication
Financial Capability
Control Your Own Destiny
Competitive Advantage
SYSTEM STRUCTURE
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Success demands efficiency and advantage
Success
Profitability Competitive Advantage
Control of your own
destiny
Early ID of “Business Pinch-Points”
Leaning About What Matters
Manufacturing Efficiency
Unfortunately, most technical teams don’t think “Business”
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Three Essential Elements for Unconventional Value
Ultimately, companies strive for material interest in material plays.
This is what you are trying to assess early in an opportunity!
Running Room
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An Integrated Multi-disciplinary Approach is Critical Beware of silos
ResourceVolume
PilotDesign
ProductionProfile
Cost
DrillingProgram
LandStrategy
Earth Science
Engineering
Drilling Technology
Finance & Planning
Stimulation Technology
Land Personnel
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Internal team
Lease us 300,000 acres and don’t spend over $150,000.
What happened??
• 350,000 ac were leased for $100,000
• The land was cheap because it had no production potential
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Iiiii
= Shale
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The Statistical Approach
A b c d E f g H i j k L m n o p q r S … 1 5 12 8 19
While there may be no “i” in Shale… it does average “i”
45 45 / 5 = 9
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Feeling Cheated? Think I’m a Stats Nerd?
Welcome to the world of the AVERAGE.
• Everybody wants a number.
• When we communicate what we expect, we anchor people.
• Decisions aren’t made at the expected result.
• Never expect the expected… yet… that is what we communicate
Real Uncertainty Rapidly Becomes A Trust Issue
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Play Entry – The “Three Frenzies” Model
Recognition of the Potential
Proof of Concept
Access Shortage
Duvernay
Montney
Over-spending common
“Land Cliff”
Eagle Ford
Beetaloo
All plays move through three unique “frenzies” of activity with different types of new entrants along the way.
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~20 Acre Spacing
One Square Mile
Example: Jonah Field Wyoming – (Majority vertical wells)
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Jonah Well Density Superimposed on Pittsburgh
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• Perceived threat of Pain is stronger for failed action than it is for failed inaction.
• People tend to hold even more tightly to their beliefs when confronted with contradictory evidence.
(Teamwork and an integrated decision management approach provide clarity and direction)
Human Bias: Before the Decision is Made…
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After the Decision is Made…
“Regret for the things we did can be tempered by time; it is regret for the things we did not do that is inconsolable.”
Sidney J. Harris
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It is all just FUD, and FUD sells!
Fear
Uncertainty
Doubt
The Energy Industry is mired in FUD. FUD is reinforced by HSE failures.
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Know what it takes to EXIT an opportunity “Off-Ramp” Planning Downside Identification and Mitigation
Exploration
Development
Delineation
Evaluation
Simple reservoir failure
Pilot / Productivity failure
Elimination of Pilot false positive
4 Principal Phases of Unconventional Plays
Value
Concept
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Conventional Mindset
Drill the “BEST” location
The Contents The Container
Trap or Lateral Seal
Vertical Seal
Reservoir Source
Timely Migration
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There are Two types of Learnings Discrete - chance events that are either present or
not present for a given area… • Productivity • Thermal maturity
Population based - A result that becomes more
reliable with sampling… Usually pertains to averages such as
• Porosity • Pseudo-Field Thickness • IP
Go or No Go
Efficiency & Profit
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Holdovers from a Conventional Mindset
Drill the best place first
Drill the best place first
Drill the best place first
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• Limited area of increased inherent production and recovery
• Typically making up the top 10 to 20 percent of the well distribution.
• Often, but not always, indicated… allegedly… by specific geophysical signatures… theories… guesses… Ouija boards…
… and expensive products.
What is a Sweet Spot?
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• A general region of favorable conditions…
• That is a “Part Play”. In significantly dispersed plays, use real data on thickness, composition, effective organics, maturity…
• Or take the easy way and use the Sales-Indicator, or inverse FI-Indicator
A Sweet Spot is NOT…
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• Unreliable and Biased assessment
• Leads to improper sampling
• Impedes learning and operational efficiency, “Engineers stop working”
• Subject to materiality concerns
• Sweet spot exploration is a destructive holdover from a “conventional” mindset.
Sweet Spot Exploration is Value Destructive
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• Seldom mentions reliability of the product being sold
• Advocacy approach eliminates alternate hypotheses
• Poor use of analogues
• Reward conflicts… self interest
Sweet Spot Methods… Promotion of Bias
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Shale Section
The “Obvious” Place isn’t Always the Best
Reliability?
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Exception…
Where the sweet spot area itself provides a material play extent Large enough to be able to contribute completion
and production learning Large enough to be able to apply the learnings to
deliver profit When you are in the Development Phase
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What’s the Purpose of a Pilot Project?
0
2
4
6
8
10
12
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
No Go
EUR
(Bcf
/wel
l)
Number of Wells
Go 3
Need to determine how many wells must be drilled before we are confident that the average development well will exceed the commerciality threshold
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The Purpose of a Pilot…
… Is to determine with an acceptable level of confidence that what you have is at least as much as what you need to have in order to create/sustain a viable project.
Precision is unwarranted
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Thresholds have both discrete and population learning
• As the sample population increases, confidence in the decision increases…
• Usually.
• Pilots will never provide 100% confidence.
• They only teach you about what you plan to learn
Conf
iden
ce
Sample Size
“Optimal” Learning
100%
50%
How much confidence do you need?
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How Many Pilot Wells Do I Need?
Pilot Effectiveness
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Early wells are most critical… incremental learning should
diminish with additional drilling
Optimal Number of Wells
False results!
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You are exploring for a family of wells within a distribution of families
Well spacing units
Play boundary
98%
95%
90%
85% 80%
70%
60%
50%
40%
30%
20% 15%
10%
5%
2%
0.1 1 10 100
Estimated Ultimate Recovery per Well (BCF)
0.1 1.0 10 100
Low (P90) Well Size Distribution
High (P10) Well Size Distribution
Haskett and Brown, SPE 96879
You may not know if you are correct for many wells
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Sweet Spotting distorts play comparison
($100)
($50)
$0
$50
$100
$150
$200
$250
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5
NPV Swarm Comparison of Competitor X Plays @ $6 / Mcf
Play Z (Green) • High value project, • Good margin wells • Low downside risk given access to transportation
Play Alpha • Lower value, • Low margin wells • Moderate downside risk, • Responds well to scale and learning
Play Alpha 30,000 acre stage (blue) 10,000 acre stage (orange)
Play Beta 1 0,000 acre stage Loc1 (yellow) Loc2(purple)
Play Z (Dry Gas) 1 0,000 acre stage
New Albany Thermogenic 1 0,000 acre stage
New Albany (red) • Negative value, • Requires high price to be marginal • Limited upside potential
Play Beta • Lower value, • Low margin wells • Moderate to high downside risk • Responds well to scale and learning
Average EUR / Well
NPV
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6 Simple Rules For Value in Unconventional
• Enter with Purpose, fairly sample
• Embrace Uncertainty, you only know what you know
• Seek to understand your Material Interest in Material
Plays
• Create, Maintain, your real Competitive Advantage
• Have an Exit Plan, but don’t give up too early
Nothing can make up for bad rock!
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The Three –Level Deliverability Screen
Geology
Engineering
Enterprise Thinking
Sub-surface
Flow
Materiality
Without all three, competitors will receive the value. To succeed in unconventional, strive for a material interest in a material Play.
Decr
easin
g nu
mbe
r of v
iabl
e op
port
uniti
es
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Copyright © 2013 by Decision Strategies
Unconventional Thinking
Bill Haskett Senior Principal – Energy Strategy [email protected]
713-526-2410